A Massachusetts hearing officer has found that Bulldog Investments violated state law by providing information about its hedge funds to a non-accredited investor.

The July 25 findings, which are preliminary, conclude that the Bulldog Web site and an e-mail constitute an offering of securities. The presiding officer, Laurie Flynn, also rejected Bulldog’s claim its communication was covered by Massachusetts’ internet offering exemption and its assertion that the Massachusetts Securities Division has no jurisdiction over it.

In accepting the Securities Division’s motion for summary decision and rejecting Bulldog’s defense, Flynn recommended a fine of no more than $25,000 and a cease and desist order against the Saddle Brook, N.J.-based firm and the other respondents, including founders Phillip Goldstein and Steven Samuels.

Goldstein says he expects the Securities Division to issue a final order in about a week, after which a Massachusetts judge will consider Bulldog’s motion for a preliminary injunction. But he remains confident that Bulldog will notch another victory over regulators, arguing that the Securities Division has violated its First Amendment rights.

“This is a terrible case” for Galvin, Goldstein argues. “There’s no harm. Where’s the beef?”

“I can’t in my mind picture what an opinion against us would look like,” he adds. “Once we get a final determination [from the Securities Division], then we’re going to go right into real court.”

Goldstein, most famous for being the plaintiff in the Goldstein v. Securities and Exchange Commission, the case that overturned the agency’s hedge fund registration requirement, warns that, if he wins, this case will have repercussions far greater than those of his earlier triumph.

“The case has massive implications for the entire panoply of securities regulations, a lot of which have to do with the regulation of speech.”

The battle between Galvin and Goldstein has had more than its fair share of nasty moments. The case centers on a request by one Brendan Hickey of Quincy, Mass., for information from Bulldog’s Web site. After registering and agreeing to Bulldog’s terms and conditions, he received an e-mail from Samuels with information about Bulldog’s funds. But Hickey was not simply a naïve investor: He apparently made the request at the behest of the RMR Hospitality and Real Estate Fund, a closed-end fund targeted by the activist Bulldog.

Not to be outdone, Goldstein called Galvin a “pompous ass” and a “bully,” and took his case to the airwaves, vowing to beat Galvin on First Amendment grounds and offering his co-panelists, Connecticut Attorney General Richard Blumenthal and former SEC Commissioner Laura Unger, a $100,000 bet to that effect. Neither, it should be noted, took him up on it.

Most recently, Bulldog took issue with statements made by Securities Division lawyer James Cappoli—who Goldstein calls a “lying [SOB]”—during an administrative hearing. Bulldog attorney Andrew Good accused Cappoli of fudging the facts in claiming Bulldog promised no risk and said it always beat the Standard & Poor’s 500. In the former case, Good notes there is a big difference between below average risk, which Bulldog trumpets, and no risk, and denied that anyone at Bulldog has guaranteed that its funds will best the S&P 500.

Goldstein—who said he attempted to settle the charges by agreeing to change his Web site—vows that he will not admit to any wrongdoing.

“It’s cost us hundreds of thousands of dollars, but we are not going to pay a fine and take a cease and desist order to settle that case because we didn’t do anything wrong,” he said. “Guys like Galvin think that they’re going to intimidate people into settling. He picked on the wrong group.”

From the current issue of

Since the inception of Modern Trader, a core editorial theme has centered on the wisdom and power of crowds. Editorial emphasis has focused on companies and projects engaged in the collection and analysis of information.